SHUMBA Energy, the UK-listed firm, has signed an agreement with two Chinese companies that could lead to the develop of a $1bn coal-to-liquids plant (CTL) using coal from its Mabesekwa prospect in Botswana.

“It’s a very big project but with have with our Chinese partners got a company with strong relationships with Chinese lenders,” said Mashale Phumaphi, MD of Shumba Energy. “There is a huge market in Botswana and regionally and the economics cannot be ignored.”

In terms of its transaction, Shumba formed a joint venture Coal Petroleum (CoPet) in which it will have an 80% stake. CoPet is to develop Project Tsosoloso which is targeting production of petroleum using coal supplied from its one billion ton Mabesekwa prospect.

CoPet is partnered with Powerchina International Group and Wison Group which will bring the CTL technology to bear in a bankable feasibility study. Phumaphi said it was possible CoPet could be listed in the UK in order to access capital to fund its equity contribution to Project Tsosoloso.

In April last year, Shumba signed an agreement with Kibo Energy, another UK-listed company, in which it exchanged rights over some 300 million tons of Mabesekwa coal earmarked for coal-to-power usage in return for a 28% stake in Kibo.

“The agreement with CoPet is for the coal that was not part of that agreement [with Kibo], but maybe Kibo could be brought into the overall structure,” said Phumaphi. “The deal is big enough to accommodate a number of parties.”

He added that the CTL plan was not in preference to the firm’s other coal strategies which include the supply of coal to Eskom. In November, it sold 50% of its Sechaba resource to Lurco Group, a private South African company, with a view to supply thermal coal to the regional market.

“We are broadening our execution risk with the CTL strategy. There are dangers to being a one-trick pony in Botswana’s energy sector,” he said.

“Project Tsosoloso is not quite a plug-and-play, but what you need to establish is a reliable source of coal, have access to water, and the correct environmental impact done,” said Phumaphi. “The technology is easy to replicate for our partners. They are involved in projects worth $100bn at the moment,” he said.

In June, Maatla Energy, a private company, said it was hoping to consolidate nearby coalfields in Botswana to eventually develop a CTL project producing 170 million litres of liquid fuel after first developing an export thermal coal mine. Maatla also wants to build a naphtha fuel by-product will be sold to other mines in the region.